Oil prices dropped for the second consecutive session and were on track for a more than 3% decrease on a weekly basis this Friday.
This comes in the wake of an unexpectedly steep interest rate increase in the UK, coupled with looming warnings about imminent rate rises in the US, both of which are stoking demand anxieties.
Brent futures saw a reduction of 56 cents, equivalent to a 0.8% drop, bringing the cost to $73.58 per barrel. Simultaneously, the US West Texas Intermediate (WTI) crude futures experienced a decrease of 60 cents, or 0.9%, landing at $68.91 at 0655 GMT.
“Concerns about a potential recession are rising once more in the wake of rate hikes from central banks and a more aggressive stance by the Federal Reserve,” Tina Teng, an analyst at CMC Markets, stated. She also noted that the strengthening dollar is applying further pressure on prices.
A climb in the dollar’s value, which has seen a 0.3% increase this week, could potentially impact oil demand by rendering the commodity pricier for those using other currencies.
Both crude oil standards experienced roughly a $3 drop in the prior session following the Bank of England’s decision to hike interest rates by half a percentage point. This has ignited apprehensions of an economic deceleration negatively affecting fuel demand.
The market is now eagerly anticipating the disclosure of Purchasing Managers Indexes (PMIs) from various global locations on Friday, which should provide insights into manufacturing activity and demand trends.
In the United States, there was an unexpected reduction in crude oil stocks last week, due in part to robust export demand and diminished imports, according to the Energy Information Administration’s Thursday report. However, the inventories of gasoline and distillates showed an increase.
Federal Reserve Chairman Jerome Powell announced that the central bank would cautiously adjust interest rates in the future as they approach the conclusion of their unprecedented phase of monetary policy tightening.
Elevated interest rates amplify the expense of borrowing for businesses and consumers, which has the potential to decelerate economic expansion and diminish the demand for oil. The anticipation of rate increases by leading central banks has cast uncertainty over the fuel demand predictions for the remainder of the year.
“Energy traders express concern that the collective action of the Fed and other central banks may stifle economic growth in the latter half of the year,” stated Edward Moya, an analyst at OANDA.
